kenav

OK - I'm sure this question has been asked before. But I really don't understand how the Euro could be worth so much more than the US dollar. Europe's not in such great economic shape either.

Also - Just came back from Italy and my bank charged us $1.50 US to 1 Euro for each ATM withdrawal. This is without the bank fees, and even when we saw that the exchange rate was 1.46. Anyone know why it was so high? (HSBC is our bank.)

All you economic whizzes - enlighten me.

Dukey

The EASY answer is "beacuse they KNOW you are about to come over there."

I suspect one more reasonable answer to the Euro vs. Dollar issue (yes, all you would-be economists lurking in the woodwork....THIS is your chance to show off with your answers so please get out of your Civic and off your cellphone and chime right in) may be the fact that other countries, mainly China, have eagerly bought off a significant amount of the US debt and there is this looming suspicion that China may decide to DUMP a whole lot of Dollars onto the market....which would make the recent Wall Street "Big Ticket Social Program" look like small potatoes...

I remember when the two currencies were at par and it was a wonderful time to be in Europe....it is still a wonderful time but simply costs you more..are you worth it????

Cholmondley_Warner

It's not just the dollar that's getting humped by the Euro. The pound is getting it in the pods too. And for the same reasons. London and New York are where the banks live and it's there that they have been bailed out - making both countries horribly in debt. Plus the US economy is a bit of a basket case right now (not that we're a whole lot better).

At a practical level it makes Paris unaffordable as it is already more expensive than London and near parity in currencies makes things much much worse. But the USA looks like a real bargain.

The difference is that in Britain we nationalised the banks, so at some time in the future we will be able to sell our shares on the open market and may even turn a profit.

travelgourmet

These things go in cycles. It was barely a decade ago that every magazine and newspaper was talking about the death of the euro. Now, it is the death of the dollar.

Of course, we are supposed to believe that somebody has a crystal ball, yet we still see 180 degree changes within a decade. And this has been despite little change in the fundamental failings and strengths of both the European and American economies. I mean, it isn't like the US deficit is anything new, and the European economies still have huge off-book liabilities related to trying to finance welfare states with shrinking working-age populations.

Given the poor track record of even economists to predict these things, I would take any answer with a grain of salt.

FrankS

The way I understand it, those who are buying our bonds hedge their portfolios in other Reserve Currencies via Euro/Dollar and Yen/Dollar spreads. Since we have been adding to our National Debt at an accelerated amount, the change in rate has led to the drop.
Add unto that all the speculators that are betting we will be forced to monetize our enormous deficits, and you have a very dismal dollar.

travelgourmet

<i>London and New York are where the banks live and it's there that they have been bailed out - making both countries horribly in debt.</i>

I think you have been listening to the self-righteous nabobs from the continent. They want to believe that they have no horse in this race and wash their hands of it, which is hooey. Cheap credit helped pay for all that German heavy equipment and all those French airplanes. Now, of course, they want to turn around and say "I told you so" and pretend that they don't need to be part of the solution.

At the end of the day, it is nothing more than the typical Franco-German "leadership", which is to keep your mouth shut until things go wrong and then start pointing fingers at everyone else and expect the Americans and the Brits to bail them out. Either the US and UK banking sectors recover, in which case the US and the UK start looking better, or they don't and France and Germany (and China too) go down with them. The French and Germans just don't want to put any money into their own recovery.

Christina

I don't know all the economic reasons so won't weight in on that one, but I know the US dollar is bad against lots, if not most, foreign currencies, so it isn't just a euro issue. I mean worse than usual.

As for your bank -- some banks add-on a foreign transaction fee to ATM use now when they didn't used to, that's probably it. My bank started doing that a couple years ago and they never used to, they now charge 3 pct for ATM withdrawals, it used to be nothing. If your rates are correct, your bank is obviously doing that also. Why? To make money.

kenav

"Who" decides on the rate? Is it a person; a group of shady men who meet in a cave?

Pete_R

"The Market" decides. Banks buy and sell money in the millions, the price fluctuates with a million and one variables but it comes down to what banks are willing to sell for and what other banks are willing to pay. The "exchange rate" you see in the paper or on XE.com is just a snapshot average of what the banks are paying that day.

kenav

Christina - As for my ATM rates in Italy - wouldn't that bank fee be on my statement? The fee from the foreign banks we took our money out of via ATM was listed on our bank statement. Not HSBC's fee though. Only the amount they charged us which was approx. $1.50 US to 1 Euro.

kerouac

The French and German economies already started growing again in the second quarter of 2009 and will also show growth for the third quarter. As the two largest economies of the euro zone, I would imagine that it is what gives strength to the euro compared to countries that are still in recession.

FrankS

Kenav,
You hit on a valid point. The currency markets are operating on non traditional market forces. Instead of the US having to offer a higher interest rates to sell our bonds, we have manipulated various rates that allow us to sell bonds at very low interest rates. Then..We have allowed a mechanism for those bond buyers to receive extra return on there bonds by being able to effectively short the dollar with no risk.

redc

"Who" decides on the rate? Is it a person; a group of shady men who meet in a cave?

The foreign exchange market decides. Euros/US$ trade similar to stocks.

Low interest rates in the US (relative to Euro rates) make the $ less attractive as an investment. Less attractive = lower dollar prices...just like a car.

J62

The latter - a group of shady men who meet in a cave. The same cave used for all those vast right wing or left wing conspiracy meetings. Pretty posh digs I hear.

IIRC the CIA built the cave to hide the alien UFOs back in the 50's, and for a while it was used by the US Gov't to develop the aids virus & ebola.

The group looks at a list of US travelers who are headed to Europe in the next month or so and use a complex profiling theory to single out who they want to stick it to. That's the reason for the new TSA exact ticket name rules.

Pete_R

Also who says the Euro is "high?"

The fact that one Euro buys more than one USD doesn't necessarily mean that the Eurozone economies are doing better than the US. The pound has always been worth more than the USD even when the country was on it's knees in the '70s or in the grip of massive recession in the '90s.

The idea that one Euro "should" equal one USD is odd really, before the Euro change over $1 would buy you just over 1300 Italian Lira. Did that mean that the USA had an economy 1300 times "stronger" than Italy? Or that thing were 1300 time more expensive in Italy?

Dr_DoGood

Look at the positive side if you can - if you found buying euro expensive then the corollary is also true - for Euro holders buying US$ is very cheap; i.e buying goods priced in US$ is more affordable than previously.

Your exporters should be having a better time of it selling to the Eurozone.

You do still manufacture and export stuff don't you? It's not <i>all</i> been outsourced to China has it?

Dr D.

kenav

Pete_R - Yes, I agree with you about not having one currency "equal" to another. It' just that the Euro started its life as equal to U.S. and the dollar has sank in comparison to the Euro since.

Dr_DoGood - Yes - we still manufacture stuff. Like our pizza.

Went to Italy (Lake Garda, Sirmione and Venice) and boy their pizza doesn't hold a candle to NY's. Really. Can't make a tasty pizza worth a dime (but will cost about $12-18 American dollars for individual one)! The Italian pizza here has spoiled this New Yorker forever. Tried may different pizzas in the areas we went to in italy. Tasteless. We were shocked.

OK - so can we export this and make some moola?

Michel_Paris

The simplest answer is to look at the debt and deficit. The world is looking at these huge numbers and deciding that there is less currency risk in holding instruments denominated in other currencies, with the euro being one of the biggest ones. China, for example, is one of the largest holders of US Treasuries. They haved shifted some of their holdings to other currencies, like the euro. If they decide to move more, further pressures on the dollar. One major way to attract buyers to your bonds and T-bills is to make it worth their while...by paying more interest. Raising interest rates can also bump up the value of the currency. But...higher interest rates can have a negative effect on the economy (for example exports more expensive, mortgage rates up). Its a fine balance.

Complicated, but it's the market's way of saying that the economics today are crap. The deficit is huge, the debt is going up, and there is no politically viable solution in sight. Raise taxes, cut programs, grow out of it..maybe.

And...be nice to China, they can change your mortgage payments.

logos999

It's all over now anyway. Just sit and wait for the bang.

kerouac

<<It' just that the Euro started its life as equal to U.S. and the dollar has sank in comparison to the Euro since.>>

Actually, the very first rate of the euro was $1.18.